Suitability and Ethical Practices Flashcards

What is the primary factor in determining the suitability of an annuity for a client?

Answer: The client's financial situation and goals

Suitability is determined by evaluating the client’s financial situation, investment objectives, and risk tolerance.

Which of the following is an example of an unethical annuity sales practice?

Answer: Replacing an annuity to generate extra commissions (churning)

Churning occurs when an advisor unnecessarily replaces an annuity to earn additional commissions, which can be detrimental to the client.

What should an annuity specialist disclose to a client before selling an annuity?

Answer: All fees, surrender charges, and risks

Annuity specialists must disclose surrender charges, fees, contract terms, and any risks associated with the annuity product.

What is the primary purpose of the NAIC’s suitability model regulation?

Answer: To ensure annuity recommendations align with client needs

The NAIC’s suitability model regulation is designed to protect consumers by ensuring annuity recommendations are suitable for their financial needs.

Which of the following actions ensures ethical annuity sales practices?

Answer: Prioritizing the client’s best interest

Acting in a fiduciary capacity means putting the client’s best interests first when recommending annuity products.

How can an annuity specialist avoid conflicts of interest?

Answer: Disclosing commissions and incentives to clients

Advisors should disclose any potential conflicts of interest, including commissions and incentives, to maintain transparency with clients.